The United States' Securities and Exchange Commission (SEC) passed Regulation 15C3-5 on Nov. 11, 2010 outlawing unfiltered access to securities markets. Without such a rule, high frequency traders are otherwise allowed to connect algorithmic trading systems directly to exchanges with no in-line monitoring or filtering by the sponsoring broker. This means that traders were able to buy and sell securities electronically with absolutely no Real-Time oversight, exposing the market to disruptions.
Moreover, sponsoring brokerages are individually exposed as they receive either drop copy summaries with no control before orders are sent or they receive end of day summaries long after a terrible event has occurred. A drop-copy port is a connection that a broker can utilize to provide a stream of event updates to the sponsoring broker.
Compounding the problem is the fact that these high frequency traders are typically using a single brokerage account while trading at numerous liquidity destinations. The advent of co-location services allows traders install their systems in liquidity destination data centers. A single client trading system is usually a collection of servers scattered across geographically separated destinations. These distributed trading systems increase the difficulty for a broker who wishes to impose strict controls on trader behavior.